As Exchange Withdrawal Restrictions Ease, Bitcoin’s Price Snaps Northward

It has been a rough time for Bitcoin these past few days, as three major exchanges halted withdrawals in the face of an issue that could impact the perceived integrity of exchanges of the currency.

Mt.Gox, a long-running but controversial exchange was first to halt Bitcoin withdrawals. With the currency inside Mt.Gox effectively trapped, the price on the exchange began to fall as people hit the surrender button.

Bitcoin traded in the $900 range for most of January on Mt.Gox, and slipped to $300 today before sharply rebounding to north of $450. Mt.Gox has yet to relax its restrictions, but confidence has been expressed in its solvency, which could have factored in its upswing.

Also trending positive for the price of Bitcoin, and those users yet balkanized on the various locked exchanges, is that exchange Bitstamp has begun processing withdrawals yet again. BTC-E, the third exchange of the trio, has not.

Reports that Bitstamp is yet again processing withdrawals have lit up the Bitcoin subreddit. The market, encouraged by the news, has sent the average price of Bitcoin up from $580 early this morning to $670 at the time of writing. Bitstamp had previously written that it had developed a software solution for the issuesan attack and transaction malleability — that caused the halt in the first place.

BTC-E and Mt.Gox could follow suit in short order.

As Bitcoin has become more known it has seen the target on its back grow; where there is value stored, there will be those who want to unlock it unfairly and raid it as they please. Provided that the three exchanges are still solvent, the crisis of the past week will not prove fatal to themselves, or Bitcoin itself. Heavy losses could endanger the individual firms and hamper Bitcoin’s march towards mainstream usage.

Disclosure: I own about $50 in Bitcoin but can’t remember my Coinbase password so it’s pretty much moot.